Crude price breaks $70 as Gulf of Mexico oil fields are paralysed

The rise of almost $4 in just one day wiped out the impact of overnight comments from the White House that the administration might release oil from its Strategic Petroleum Reserve to bring prices down.

Traders ignored the political intervention to focus on the impact the hurricane had had on oil production and refinery capacity in the Gulf.

Katrina has shut 95 per cent of oil production from the Gulf of Mexico, which is home to a quarter of American production, according to the US Minerals Management Service.

"There's going to be a lot more damage offshore than there will be to the refineries," said Peter Beutel, president of the trading consultant Cameron Hanover. "But in this age, losing even one refinery would be worse than losing a production facility." The US Department of Energy said that at least nine US refineries were closed as a result of the hurricane, with another four reducing production rates.

An oil drilling facility broke free of its mooring in Mobile Bay, Alabama, and slammed into a bridge because of high winds from the hurricane, the Alabama Department of Transportation said.

At least six companies reported rigs adrift, listing or sunk. One company, Newfield Exploration, said that it had lost one of its production platforms in the eastern Gulf.

A senior Republican said yesterday that the White House was likely to release oil from the national emergency stockpile.

Republican Joe Barton of Texas, said to CNBC: "The president will make a decision [to use the Strategic Petroleum Reserve] in the next couple of days."

The Energy Department said that it had already received a request from a hurricane-hit refiner who was anxious to borrow crude oil from the SPR.

In New York, oil prices jumped by $3.70 to $70.90 a barrel, the highest nominal figure ever recorded - although less in dollar terms than prices achieved during the 1970s oil crisis.

The surge was matched by a jump of $3.37 a barrel to $68.24 in London where markets reopened after the August bank holiday.

Dominic Bryant, an economist at BNP Paribas in London, said that prices could hit $80 in the near term. "If damage to the infrastructure is found to be reasonably severe, prices will increase over the coming weeks," he said.

Other analysts warned that there may be worse to come as the peak hurricane season was not due until mid-September through to mid-October.

"We've had two hurricanes hit the Gulf coast already," said Deborah White, senior energy analyst at SG Commodities in Paris.

"The primary uncertainty right now is the extent of damage, and headlines there will go straight into prices."

Rising oil prices will cause headaches for Gordon Brown and his fellow finance ministers ahead of a key meeting of the G7 nations and the International Monetary Fund next month.

The IMF is almost certain to cut its growth forecasts in the light of the high oil price, which pushes up prices of manufactured goods and reduces households' disposable incomes.

It also drives up inflation and forces central banks to raise interest rates - delivering another blow to cash-strapped consumers.

Insurance companies are also likely to be major victims. Fitch Ratings, the financial ratings agency, said Katrina would be the largest insured loss from a single event since the World Trade Centre attacks and that uninsured losses could match those covered.

Munich Re, the world's biggest reinsurer, said its costs from Katrina might reach €400m (£273.5m).

The Lloyd's of London market said it expected to receive significant insurance claims but said it was well-equipped to manage the financial impact.

Eqecat, a US firm that uses computer models to predict claims, projected insured costs of between $9bn (£5bn) and $16bn (£8.96bn).

Last year was the costliest ever for US natural disasters as four hurricanes - Charley, Ivan, Frances and Jeanne - prompted $22.9bn (£12.8bn) in insurance claims.